Business context and reporting period
Limbach Holdings, Inc. (formerly 1347 Capital Corp.) filed this Form 10-Q for the quarter and six months ended June 30, 2016. At quarter-end, it was a blank-check company pursuing a merger with Limbach Holdings LLC; it had not begun operations or generated revenue. The merger was approved by stockholders on July 19 and closed on July 20, 2016, after the reporting period. Accordingly, these financial statements do not report the acquired operating business’s results.
Key financial metrics
| Metric | Three months ended June 30, 2016 | Six months ended June 30, 2016 | Comparable 2015 period |
|---|---|---|---|
| Revenue | $0 | $0 | $0 |
| General and administrative costs | $602,841 | $1,033,085 | $78,292; $220,600 |
| Operating loss | $(602,841) | $(1,033,085) | $(78,292); $(220,600) |
| Interest income | $43,634 | $90,732 | $6,978; $13,162 |
| Net loss | $(559,207) | $(943,853) | $(71,314); $(207,438) |
| Basic and diluted loss per share | $(0.30) | $(0.50) | $(0.04); $(0.11) |
Comparable-period figures in the final column are shown quarterly first and six-month second. Margins are not meaningful because the company reported no revenue. Six-month operating cash outflow was $102,133, versus $165,706 in 2015. Cash fell by $56,641 to $63,185. Cash and investments in the trust account were $46.0 million at June 30, 2016.
At quarter-end, total assets were $46.1 million, including trust assets; liabilities were $1.08 million, including a $125,000 non-interest-bearing sponsor note payable upon a business combination. Stockholders’ equity was $5.04 million, and $39.96 million of redeemable public shares was classified outside permanent equity. No long-term debt was reported. The filing does not provide financial results or debt balances for the acquired Limbach operating business.
Material changes versus prior comparable periods
General and administrative costs and net losses increased substantially from both 2015 comparable periods, primarily as merger-related legal, proxy, listing, advisory, and other public-company expenses rose. Six-month net loss increased to $943,853 from $207,438. The company attributed $717,041 of six-month expenses to legal fees and reported $35,356 in merger proxy printing fees and $25,000 in investment-bank advisory fees. Interest income also increased, but only partially offset expenses.
Compared with December 31, 2015, cash outside the trust declined from $119,826 to $63,185, while accounts payable and accrued expenses increased from $130,283 to $953,543. Trust assets decreased slightly, from $46.06 million to $46.01 million. The company reported no market or interest-rate risk at June 30 because trust proceeds were held as cash.
Outlook, risks, contingencies, and unusual items
- Merger consideration and financing: The merger agreement described $55 million in aggregate consideration, with cash, shares, and warrants varying with trust redemptions. Closing conditions included at least $18 million released from the trust and at least $65 million of debt financing in total, with no less than $40 million funded at closing. The filing does not clearly state the final financing or consideration amounts following closing.
- Potential preferred stock: The company had agreed to issue up to $10 million of preferred stock if redemptions reduced trust funds below $42.9 million. The described terms included cumulative dividends of 8%, 10%, and then 12%, mandatory redemption at par after six years, and conversion at the holder’s option. The filing does not clearly state whether this financing was issued.
- Redemption and dilution: Public-share redemptions affect the cash paid and equity and warrant consideration issued to Limbach holders. The merger terms and possible preferred issuance could dilute common shareholders and create senior dividend and liquidation claims.
- Going concern and liquidity: The company stated its available cash and releasable trust interest were expected to fund operations for the remainder of its term, but warned that transaction costs, limited trust interest, or redemptions could require additional financing. Failure to complete a business combination by the applicable deadline would require liquidation; management said this raised substantial doubt about the company’s ability to continue as a going concern.
- Listing status: The company’s securities were delisted from Nasdaq on July 12, 2016 for failing the minimum public-holder requirement and began trading on OTCQB on July 13.
- Litigation: A May 2016 class and derivative action alleged, among other things, that the merger violated the company’s charter and that directors breached fiduciary duties and filed an incomplete or misleading proxy. Plaintiffs sought to enjoin or rescind the merger and obtain damages. The defendants intended to contest the claims and stated they believed them to be without merit. The filing does not report the case’s eventual outcome.
- Controls and guidance: Management concluded disclosure controls were effective and reported no material change in internal control over financial reporting. The filing provides no operating guidance for the acquired business.
Important facts for investors to verify
- Final post-merger financing, including the amount of debt funded at closing and whether preferred stock was issued.
- Actual public-share redemptions, cash delivered to Limbach holders, and final shares and warrants issued, including resulting dilution.
- The acquired Limbach business’s post-close financial condition, revenue, profitability, cash flow, and debt; these are not included in this pre-combination quarter’s statements.
- Developments and outcome of the shareholder litigation and the company’s OTCQB listing and public-holder status.
- Whether post-combination liquidity is sufficient to meet operating, financing, and any preferred-stock obligations.